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Stocks sank Friday as a blue chip selloff spilled over into the broader market amid economic concerns.

The Dow Jones industrial average plunged 27.95 to 3,539.47, ending a week when it hit a new high on a sour note - with a deficit of 7.27 points. The widely followed indicator closed at a record of 3,567.70 on Monday.Declining shares outnumbered advances on the New York Stock Exchange by about 10 to 9, with 924 up, 1,001 down and 653 unchanged.

Volume on the floor of the Big Board contracted to 250.39 million shares as of 4 p.m. from 260.81 million in the previous session.

A quartet of concerns weighed down stocks. Uncertainty about the consequences of President Clinton's deficit-cutting plan, weakness in bonds, a looming currency crisis in Europe and renewed inflation fears all acted as drags on the market.

One particularly troubling development was the selloff in Microsoft shares, said Hugh Johnson, senior vice president and chief economist at First Albany Corp.

"The Microsoft news is probably more important than people initially thought," he said. "What it says, along with the poor GDP report issued Thursday, is that we're starting to see a slowdown in the investment in technology."

Microsoft tumbled 5 to 74 on the Nasdaq market and was the volume leader with nearly 9 million shares changing hands. Several brokerages reduced their earnings forecasts after the computer company's executives made cautious comments about sales prospects.

Johnson said investors also were worried about the economic implications of the deficit reduction package being considered by Congress. A weak reading on the gross domestic product Thursday reminded investors that the fragile economic expansion might not be strong enough to cope with tax hikes and other deficit-cutting measures.

Reports on U.S. economic conditions presented few surprises Friday and went virtually ignored. The Commerce Department reported that personal income held steady while spending rose 0.6 percent. A separate government report said sales of new homes rose 11 percent in June.

On foreign financial markets, expectations of a collapse in Europe's exchange rate mechanism offered some mild encouragement to investors to buy equities. Stocks moved ahead in London where the Financial Times-Stock Exchange 100 share index rose 8.9 to 2,926.5.

Earlier in Tokyo, the 225-issue Nikkei Stock Average fell 76.71 points ending the week at 20,380.14.

A surge in gold prices caused inflation fears to resurface. Spot gold jumped $9.20 an ounce to $407 on the Commodity Exchange in New York. Precious metals stocks featured prominently on the NYSE's and other actives lists.

Attention again was directed at companies reporting quarterly results.

A steep slide in one Dow industrials component occurred amid earnings news. Minnesota Mining & Manufacturing shed 33/4 to 105 after reporting it earned $331 million, or $1.51 a share, in the second quarter compared with $317 million, or $1.45 a share, in the corresponding 1992 period.

Other losers among the blue chips included Disney, which dropped 11/8 to 371/2.

Among other major indicators, Standard & Poor's index of 500 stocks fell 2.11 to 448.13, making it 1.03 higher in the week. The NYSE's composite index fell 0.85 to 248.49, leaving it with a gain of 1.03 for the week. The Nasdaq composite fell 2.52 to 704.72 and was up 4.48 in the week.

At the American Stock Exchange, the market value index went up 0.41 to 437 and added 4.95 in the week.